As Iraqi leaders continue to debate who should run the nation's army and security services, other ministries are beginning to grapple with their own challenges. Few are more dismaying than the problems facing the new Oil Minister. Iraqi and U.S. officials say crumbling infrastructure, smuggling and sabotage are combining to limit Iraqi oil production, leading to the gas and electricity shortages that are plaguing the Iraqi public.

Iraq's Oil Minister has already signaled he intends to fight corruption and to reassure foreign investors that oil contracts in Iraq will be transparent and enforceable.

NPR's Peter Kenyon reports.

PETER KENYON reporting:

One of several problems that delayed the formation of the new government was the rear guard action waged by the Shiite Fadila Party to hang onto the Oil Ministry, which it controlled under former Prime Minister Ibrahim al-Jafari.

Allegations of corruption were rife in those days, as key Oil Ministry positions were given to Fadila Party loyalists over more skilled candidates, and supplies of petroleum products sagged. Officials say that at one point earlier this year there was only a half-day's supply of gasoline in all of Baghdad, and gas lines stretched out of sight.

Meanwhile, a report by the Ministry's Inspector General estimated that some four billion dollars worth of gasoline had been smuggled out of Iraq last year.

The new Oil Minister, scientist Hussein Shahristani, said all the right things as he took office, starting with the need to tackle graft and sabotage.

Mr. HUSSEIN SHAHRISTANI (Iraqi Oil Minister): Well, the first thing we need to do is fight corruption, starting at the highest levels within the Ministry. And also to make sure that we put an end to smuggling of crude oil and oil products out of the country, and depriving the Iraqi citizens from these products.

KENYON: Shahristani says he's familiar with reports that some of the brigades assigned to protect the oil pipelines may instead be cooperating with insurgent attacks, and he says those brigades are under scrutiny.

Mr. SHAHRISTANI: If any of them is playing its role to protect oil facilities and pipelines, they will continue to do so. And if any of them is either part of the sabotage or are inefficient in performing their duties, then we'll look for replacements.

And as a matter of fact, we have already been discussing plans to protect the pipelines north of Baghdad.

KENYON: As with many things in this complex and fractious country, it's not simply a matter of replacing problem brigades. One American official says the debate is analogous to the one soon after the regime fell, when the Iraqi Army was dissolved.

Now some are asking, do we really want to put another large group of armed Iraqis out of work all at once? Critics of that approach are hoping Shahristani will be more surgical, but all sides agree urgent action of some kind is required.

U.S. and Iraqi officials agree that smuggling of crude oil seems to be less than was previously thought, and some of the pipeline failures that were routinely put down to acts of sabotage may have been due to corrosion or faulty welding. But smuggling of refined products is widespread, and one of the key countermeasures was never taken by the previous government, in part because it would hit ordinary Iraqis in the wallet.

Tom Delare, economic counselor at the U.S. Embassy, says the massive subsidies that keep gas and heating oil at artificially low prices in Iraq also create a huge incentive for smugglers who simply take Iraqi gasoline or kerosene out of the country, bring it right back in, and sell it at much higher import prices.

Delare says the solution, which Iraq has already promised the International Monetary Fund it will implement this year, is simply to raise the prices.

Mr. THOMAS DELARE (U.S. Counselor for Economic Affairs, U.S. Embassy, Baghdad): Well, it's a shame the last government, the Jafari government, did not do this. The problem was right before them, and basically they blinked.

So what they need to do now is to recognize that this is one of the fundamental reasons why they're having a problem with supplying fuel to the population, and simply increase the cost up to something like the average price paid by citizens of the other Gulf states.

KENYON: Risking the wrath of Iraqi motorists with gasoline price hikes is just one of Mr. Shahristani's challenges. To the north, the Kurds, who have already signed exploration deals with international oil companies, want their own oil ministry, something Baghdad strongly opposes.

Such proposals trigger fears that northern oil fields could become a new battleground for Iraq's mistrustful factions instead of their ticket to economic salvation.

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